Economics for Investment Decision Makers Micro, Macro, and International Economics

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The economics background investors need to interpret global economic news distilled to the essential elements: A tool of choice for investment decision-makers. Written by a distinguished academics and practitioners selected and guided by CFA Institute, the world's largest association of finance professionals, Economics for Investment Decision Makers is unique in presenting microeconomics and macroeconomics with relevance to investors and investment analysts constantly in mind. The selection of fundamental topics is comprehensive, while coverage of topics such as international trade, foreign exchange markets, and currency exchange rate forecasting reflects global perspectives of pressing investor importance. Concise, plain-English introduction useful to investors and investment analysts Relevant to security analysis, industry analysis, country analysis, portfolio management, and capital market strategy Understand economic news and what it means All concepts defined and simply explained, no prior background in economics assumed Abundant examples and illustrations Global markets perspective

CHRISTOPHER D. PIROS, PhD, CFA, is the Managing Director of Investment Strategy and Chairman of the Investment Policy Committee at Hawthorn, a member of the PNC Financial Services Group, Inc., which is dedicated to serving the needs of individuals and families with investable assets in excess of $20 million. Prior to joining PNC, Mr. Piros served on the team responsible for the curriculum underlying the Chartered Financial Analyst® designation. He also has served as Director of Investment Strategy & Portfolio Management at Prudential Investments LLC, the wealth management services arm of Prudential Financial. And he was a global fixed-income portfolio manager and head of fixed-income quantitative analysis at MFS Investment Management.

JERALD E. PINTO, PhD, CFA, is Director, Curriculum Projects, in the education division of the CFA Institute. Prior to joining CFA Institute, he consulted with corporations, foundations, and partnerships in investment planning, portfolio analysis, valuation, and quantitative analysis. Pinto also worked in the investment and banking industries in New York, and taught finance at NYU Stern School of Business. He holds an MBA from Baruch College, a PhD in finance from the Stern School, and is a member of CFA Virginia.

CFA INSTITUTE is a global, not-for-profit organization comprising the world's largest association of investment professionals. With over 100,000 members, and regional societies around the world, CFA Institute is dedicated to developing and promoting the highest educational, ethical, and professional standards in the investment industry. CFA Institute offers a range of educational and career resources, including the Chartered Financial Analyst (CFA) and the Certificate in Investment Performance Measurement (CIPM) designations, and is a leading voice on global issues of fairness, market efficiency, and investor protection.

Foreword

Acknowledgments

About the CFA Institute Investment Series

Chapter 1 Demand and Supply Analysis: Introduction

Learning Outcomes

1 Introduction

2 Types of Markets

3 Basic Principles and Concepts

3.1 The Demand Function and the Demand Curve

3.2 Changes in Demand vs. Movements along the Demand Curve

3.3 The Supply Function and the Supply Curve

3.4 Changes in Supply vs. Movements along the Supply Curve

3.5 Aggregating the Demand and Supply Functions

3.6 Market Equilibrium

3.7 The Market Mechanism: Iterating toward Equilibrium—or Not

3.8 Auctions as a Way to Find Equilibrium Price

3.9 Consumer Surplus—Value minus Expenditure

3.10 Producer Surplus—Revenue minus Variable Cost

3.11 Total Surplus—Total Value minus Total Variable Cost

3.12 Markets Maximize Society’s Total Surplus

3.13 Market Interference: The Negative Impact on Total Surplus

4 Demand Elasticities

4.1 Own-Price Elasticity of Demand

4.2 Own-Price Elasticity of Demand: Impact on Total Expenditure

4.3 Income Elasticity of Demand: Normal and Inferior Goods

4.4 Cross-price Elasticity of Demand: Substitutes and Complements

4.5 Calculating Demand Elasticities from Demand Functions

5 Summary

Practice Problems

Chapter 2 Demand and Supply Analysis: Consumer Demand

Learning Outcomes

1 Introduction

2 Consumer Theory: From Preferences to Demand Functions

3 Utility Theory: Modeling Preferences and Tastes

3.1 Axioms of the Theory of Consumer Choice

3.2 Representing the Preference of a Consumer: The Utility Function

3.3 Indifference Curves: The Graphical Portrayal of the Utility Function